US bankruptcy court puts PNB officials under the scanner for Nirav Modi fraud

Punjab National Bank (PNB) continues to hog the headlines, all for the wrong reasons. Now, the New York court where three of Nirav Modi's companies filed for bankruptcy has reportedly called for an investigation into the role of the bank's employees in the alleged fraud before deciding on proceedings.

According to The Economic Times, the court-appointed examiner will have the right to conduct voluntary interviews of debtors, current and former accounting and audit professionals as well as issue subpoenas, or seek judicial intervention in cases where witnesses decline to cooperate.

"Conduct a forensic financial analysis of the books and records of the debtors, bank records, vendor records, and any and all relevant information of other entities consistent with the investigation, and trace the movement of monies obtained under the alleged fraud circumstances against PNB to the debtors, and related entities and individuals," the court order reportedly said.

Earlier this month, the daily had reported that the Bankruptcy Court for the Southern District of New York had asked a global professional services firm, Alvarez and Marsal, to investigate the circumstances surrounding the alleged Rs 13,000 crore bank fraud involving the diamantaire-turned-fugitive.

Incidentally, BDO India LLP, the firm engaged by PNB to conduct a forensic investigation into the fraud committed by Modi and his companies, has also shared its findings with the US bankruptcy court. In a document dated May 10, Kartik Radia, Partner & Head - Business Advisory Services at BDO, declared that the three companies Firestar Diamond Inc, A. Jaffe Inc and Fantasy Inc that have filed for bankruptcy in New York received at least around $46 million (Rs 312.4 crore) in remittances from PNB since 2011, the time when Modi's fraudulent activities are believed to have commenced. He added that of this amount, "approximately $8.329 million was remitted in the form of funds issued pursuant to LoUs (the "Debtor LoUs")".

BDO also found that there were no records of four of the five Debtor LoUs [letter of undertaking] in PNB's CBS (Core Banking Solutions) system and they were not secured by any margin or collateral - Gokulnath Shetty, the former deputy manager at the centre of the fraud, had authorised them. Furthermore, the forensic report flagged off "certain suspicious entities", including Fancy Creations Company, World Diamond Distribution, FZE, Eternal Diamond Corp, Empire Gems FZE, Pacific Diamonds FZE and Tri Color Gems, that were beneficiaries of the LoUs.

"Each of these entities bear two or more indicia of suspicious activity", said Radia, including sharing current/former key management personnel with the three companies that filed for bankruptcy and lacking a Bill of Entry in the Customs database. The latter, at the very least, reeks of money laundering.

Interestingly, the daily added that these developments come days after the assets of A. Jaffe were auctioned and sold for about $8 million.

Meanwhile, at home, the Central Bureau of Investigation (CBI) has filed its second charge-sheet in relation to the PNB fraud today. Agency sources told India Today that it names 18 accused, including three firms owned by diamond businessman Mehul Choksi - Gitanjali Gems Limited, Gilli India Limited and Nakshatra Brand Limited - and the four top PNB officials named in the first charge-sheet. The latest charge-sheet reportedly focusses on the criminal conspiracy and fraud committed by Choksi, Modi's maternal uncle and business partner. Choksi and Modi's wife, Ami, have been shown as wanted by the agency.

To remind you, on Monday, CBI had charge-sheeted Modi and 24 others in connection with fraudulent issuance of Rs 6,498.20 crore worth of LoUs to Diamond R US, Solar Exports and Stellar Diamonds. The list included PNB's former MD and CEO Usha Ananthasubramanian and her top officials -- Executive Directors KV Brahmaji Rao and Sanjeev Saran and General Manager Nehal Ahad. The CBI has alleged that the bank's top brass "misrepresented" the factual position on LoUs to the RBI, which allowed the fraud to run on for seven years. Worse, they failed to prevent the fraud despite having prior knowledge of how LoUs can be used to cheat banks.